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EU approves 110-billion-euro bailout package

EU finance authorities have decided to activate a support plan to help Greece avoid debt default. The joint EU-IMF bailout package, pending approval at a eurozone summit on Friday, would provide 110 billion euros over three years to Athens.

AFP - European finance ministers endorsed Sunday a 110-billion-euro bailout to keep Greece from going bankrupt after the heavily indebted country agreed to make draconian spending cuts.

Eurozone finance ministers gave their green light to the long-delayed deal after Greece announced it would slash public sector wages, raise the retirement age and increase taxes despite stiff resistance from unions.

"We have decided to activate the support plan for Greece," Luxembourg Prime Minister Jean-Claude Juncker, head of the eurozone's group of finance ministers, told reporters after talks with the bloc's 16 members in Brussels.

Juncker said the leaders of eurozone countries would meet in the Belgian capital on Friday to sign off on the first transfer of funds.

Greece faces an urgent need for help with nine billion euros in debt payments due on May 19.

Greece has been under heavy pressure to cut a massive public deficit that has shaken the euro currency, rattled international markets and sparked fears of contagion to other heavily indebted European countries.

Greek Prime Minister George Papandreou warned his nation that it would have to make "big sacrifices."

Q&A: The Greek crisis explained

Germany, which would reluctantly provide the lion's share to any Greek bailout, praised Athens for its plans to slash spending but told it to live up to its promises.

"I think that this is a very ambitious programme," Chancellor Angela Merkel, who has found herself at the sharp end of foreign criticism for dragging her feet on coming to Greece's aid, told reporters in Bonn.

"I think that (the bailout) is the only way to ensure the stability of the euro," she said.

In Brussels, French Finance Minister Christine Lagarde said it was in the "clear interest" of Europe to keep Greece stable.

"It's an exercise in solidarity," Lagarde stressed, although she also warned that Greece must stick to its promises and "we must verify that it does stick to them."

Finnish Finance Minister Jyrki Katainen said there was no option, comparing Greece to Wall Street giant Lehman Brothers, whose fall in 2008 precipitated the financial crisis that plunged the world into its deepest post-war recession.

Freeze salaries and pensions of public sector employees (The government will not touch salaries in the private sector, but changes in employment law are anticipated)

Raise minimum retirement age to 60 from 57

Cut public investment projects

Allocate funds for bailing out banks

Greek unions immediately voiced their dismay and vowed to step up their campaign against the cuts, one day after 15,000 people swarmed through the streets of Athens in May Day protests.

Yannis Panagopoulos, president of the million-member strong GSEE union, denounced the government's plan as the "most unfair and hardest measures in the modern history of Greece."

"They are going to worsen the recession and plunge the economy into a deep coma," he added. "It's time to step up the social battle, our May 5 general strike will be the beginning of a long battle."

After months of hesitation, eurozone countries decided to accelerate rescue efforts for Greece out of fear its debt crisis could pull down other members with severely strained public finances such as Portugal, or even Spain.

In exchange for emergency loans, Greece agreed new budget cuts of 30 billion euros over three years with the aim of slashing the public deficit to less than three percent of output by 2014, from 13.6 percent last year.

Finance Minister George Papaconstantinou said the government would scrap 13th and 14th month wages for public sector workers as well as for pensioners.

The retirement age for women will be raised next year from 60 to 65, bringing it in line with that for men. From 2015, workers will have had to pay retirement contributions for 40 years to get their pensions compared with 37 years now.

The sales tax is to be raised from 21 percent currently to 23 percent this year.

However, the European Central Bank warned Greece that it should "stand ready" to make more cuts "that may become appropriate to achieve the objectives of the programme."